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Nasdaq 100 ETF Down, Not Out After Amazon, Apple Earnings

Following Thursday's after-hours earnings disappointments from technology darlings Apple (NASDAQ: AAPL) and Amazon (NASDAQ: AMZN), it would have been reasonable to expect the PowerShares QQQ (NASDAQ: QQQ) would be taken to the woodshed. Immediately following those earnings announcements, QQQ, also referred to as the Nasdaq 100 ETF, was volatile. However, by 5:30 p.m. New York time, the fund was down just 0.4 percent.

That is not to say Friday's action will be positive for QQQ, which has one of the largest weights to Apple of any ETF. Combined, Apple and Amazon represented 22.82 percent of QQQ's weight as of the close of markets on October 24.

The Nasdaq 100 is a modified capitalization-weighted index, meaning its largest constituents account for bigger percentages than do smaller firms. For example, Apple's closing market value on Thursday was 5.8 times larger than Comcast's (NASDAQ: CMCSA), but Apple's weighting in QQQ was 7.5 times bigger than the cable company's.

Given Apple's arguably excessive weights in QQQ and the Technology Select Sector SPDR (NYSE: XLK), which devotes about 20 percent to the iPad maker, some traders might view Apple as the tail wagging the dog of these ETFs. There is something to that theory. Over the past six months, QQQ and XLK share a correlation of 0.92 to Apple, according to State Street data.

If there is a silver lining for QQQ investors it is that the ETF has not been controlled by Apple or Amazon in the past month. In that time, the two stocks are down an average of 9.75 percent. QQQ is off just 5.24 percent.

Conversely, while QQQ will likely decline on Friday, it probably will not do so by as much as Apple or Amazon. That says the fund is serving one of the primary functions of ETFs: Mitigating single-stock, or in this case, two-stock, risk.